According to reports, JVCEA, a self-regulation entity, has been issued strong warnings to get its act together as the Japan Financial Services Agency presses for the organization to accelerate the adoption of its AML regulations.
Local government officials and business professionals claim that Japan’s self-regulation “experiment” for the cryptocurrency sector is not succeeding as anticipated.
Since 2018, the Japan Virtual Currency Exchange Association (JVCEA), a self-regulation entity, has been tasked with developing regulations for the nation’s cryptocurrency industry. At the time, there were claims that the organization might be more equipped than a government body to handle crypto regulation.
An unnamed source “close to both industry and government,” however, claimed in an interview with the Financial Times (FT) on July 18 that the current framework for cryptocurrency regulation is failing:
“When Japan decided to experiment with self-regulation of the cryptocurrency industry, many people around the world said it would not work. Unfortunately, right now it looks as though they may be correct.”
In reaction to the $530 million Coincheck exchange theft in 2018, the group was created. It is authorized to enact and implement regulatory frameworks for regional cryptocurrency exchanges and is recognized by Japan’s Financial Services Agency (FSA).
Numerous well-known local cryptocurrency companies, like Coincheck, BitFlyer, and Rakuten Wallet Co., as well as the Japanese affiliates of FTX and Coinbase, are among its members.
The JVCEA apparently received quite a bit of criticism from the FSA in recent months for its tardiness in initiating regulation.
The FT claims that the FSA has outlined important problems with the JVCEA, including its failure to implement anti-money laundering (AML) regulations on time and its secretariat’s failure to communicate with directors and member companies, both of which point to poor management.
The report also stated that it was unclear “what kind of deliberations the body was having, what the decision-making process was, why the situation was the way it was, and what the responsibility of the board members was” and that the FSA had previously issued an “extremely stern warning” to the JVCEA in December to get its operations under control.
In June, Prime Minister Fumio Kishida urged the organization to expedite the process for listing digital assets on regional cryptocurrency exchanges while remaining “mindful of the need to protect customers.”
Another unnamed source close to the JVCEA claimed that the group lacks office staff who have a sincere interest in or expertise in crypto.
They claim that the office is mostly made up of retired bankers, brokers, and government employees and does not have any representatives from the crypto member businesses listed on the JVCEA website.
“That is why no one there really understands blockchain and cryptocurrencies. The whole mess shows it is not a simple problem of governance. The FSA is very angry about the whole management.”
The JVCEA claims that it is currently trying to address the organization’s existing problems and make improvements. Masao Yanaga, a professor at Meiji University and member of the JVCEA board, also emphasized that the organization lacked the means to move rapidly.
Yanaga added that the lack of international agreements governing the movement of client data between cryptocurrency exchanges has made it challenging to apply AML regulations.
“The operators of the exchanges worry that even if we create these rules, they won’t be able to implement them,” he said.
This year, the JVCEA made a small change to its listing requirements for digital assets. The organization is entrusted with evaluating tokens that local businesses want to sell, but it typically takes the JVCEA six months or longer to complete the screening procedure.
By creating a “green list” of 19 assets, including Bitcoin (BTC), Ether (ETH), and Ripple, JVCEA relaxed some of its rules in March (XRP).